A C.S.X. train loaded with coal winds its way into the mountains in this Nov. 21, 2004 file photo taken near the New River at Cotton Hill in Fayette County, W.Va. (AP Photo/Jeff Gentner)
The recent boom and bust of unconventional oil and gas development, or “fracking,” has reopened serious questions about resource management in many U.S. states. While the oil and gas boom generated revenue, jobs, and economic development, the recent bust has adversely impacted state budgets due to declining industry investments in exploration and production and job cuts.
The boom-bust cycle of unconventional oil and gas development highlights the need for strategic management by state governments of fracking-related revenues, not only to minimize the less desirable aspects of the boom-bust cycle but also to enhance long-term prosperity. States can address these challenges by imposing a reasonable severance (extraction) tax on their oil and gas industry and channeling a portion of the revenue into permanent trust funds. In doing so, states can convert volatile near-term revenues from unconventional oil and gas development into a longer-term and continuous source of investment funds for building sustainable and dynamic economies.
Locally, the West Virginia Center for Budget and Policy is noting the significance of this issue to our state: